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Echelon Seeks Smart Houses

In a smart house, the toaster can talk to the refrigerator, thanks to Echelon's open network systems.

Hey, Rule Breakers! Hope you enjoyed Thanksgiving, if you celebrated it, and that you're treating the market volatility with equanimity. Last week Jeff Fischer provided much-needed perspective on the market shakeout. We know that making Rule Breaking investments requires stamina in the face of both ups and downs, because Rule Breakers may perform wildly -- in both directions!

Today I'll begin looking at another potential Rule Breaker, Echelon Corporation(Nasdaq: ELON), which I own. To describe what Echelon does, I'm going to ask you to tap into all of your curiosity and recapture some childhood wonder.

Childhood Rule BreakersDid you or your parents ever read the Danny Dunn books as a child? From scrape to scrape, science-loving Danny and his friends Joe and physicist-wannabe Irene traveled in time, became invisible, explored space pre-Sputnik, and wandered the ocean floor -- they even had a weather machine. For the 1950s and 1960s, these were magical dreams, all the more remarkable because they drew on the imagination of author Raymond Abrashkin, whose almost complete paralysis required that he point to letters on a keyboard to communicate his ideas to co-author Jay Williams. The two eventually sped it up and wrote five books together, with Williams penning another 10 after Abrashkin's death. The authors were Rule Breakers, and so were their stories.

In the books, Danny's widowed mother kept house for Professor Bullfinch, whose scientific machinations challenged even Danny's curiosity -- as when Danny turns the weather machine loose and a thunderstorm finds his mother's cooking pot. Cyber-world writer and investor Esther Dyson cites Danny Dunn and the Homework Machine as the childhood book that most influenced her career choice.

But I have my own favorite.

The Automatic HouseBeing too much of a nerd to wish for a homework machine, I loved Danny Dunn and the Automatic House. Danny, friends, and the Professor concocted a house of smart devices -- though they didn't use the term. I wanted that house. With Danny as a guide, I lay on the floor of our home and imagined all the things it could do -- beginning with turning upside down so we would all walk on the ceiling.

A few of Danny's automated house tools soon appeared on the market, at least as prototypes -- video telephone, a voice-controlled door. Only in the mid-1980s, however, would a modern-day Danny imagine and create the tools, not only for an automatic house, but for a world of networked control systems of smart devices -- in homes, buildings, factories, and transportation systems -- all talking to each other, controlled from anywhere, saving money, and providing safety and service.

A little automatic controls historyDanny's house contained one dumb control device -- a thermostat for the heating system. According to Early Gray, Control Contractors, Inc., automatic temperature control was invented in the 1800s, marking the beginning of control systems. It used pneumatics -- compressed air at a simple protocol of between 3 to 17 pounds per square inch. (Ever seen the shiny tubes in old department stores, through which hollow metal canisters with rubber bumpers transmitted bills, money, or queries? Check the movie Brazil for a depiction of this pneumatic Internet.) The pneumatic protocol meant that anybody could swap controllers regardless of manufacturer.

But no good deed goes unpunished. In the 1970s, increased computing speed at lower cost allowed control systems that gave some power to formerly dumb devices and networked them under a master controller. Customers embraced these new systems because they provided fewer errors, more control, and savings -- and, for the vendors, a real gold mine! Once vendors installed their own closed proprietary systems, they could lock buyers into 10-15 years of maintenance, repair, and upgrade revenue. Companies competed to chain up customers.

Modern-day DannyLuckily for the chainees, Mike Markkula -- Steve Jobs' and Steve Wozniak's bankroller, and later Apple's(Nasdaq: AAPL) chairman -- wanted his version of Danny's automatic house. Markkula spent part of his time and money in the mid-1980s on the frustrating task of wiring his house for a "smart" lighting and entertainment system. He wondered why we couldn't program appliances like personal computers, and have them communicate with each other over power lines, radio waves, and appliances. If we can make these increasingly powerful microprocessors that make the appliances intelligent, why can't we make microprocessors that all speak the same language?

With Ken Oshman, Markkula and Echelon developed the LonTalk protocol and the Neuron Chip, a small inexpensive LonTalk device to embed in any microprocessor-based "smart" device. Any Neuron Chip device can connect to any other -- any way you want: through power lines, twisted pair (newfangled wiring), whatever. Echelon licenses the Neuron Chip to semiconductor makers for free, making its money selling its proprietary LonWorks hardware and software for use with networks of smart devices. And, because of the open LonTalk language protocol, customers are not limited to Echelon products: They've cast off their chains.

"Bringing the Internet to Life"Wanna see for yourself? Play with this nifty featurefrom Echelon's website. With your computer and the Internet, you control the lights, window shade, a clock -- and when they get the demo set up for it, the TV. Be patient -- if a lot of you are doing it at once, things may slow down a little.

It's a real room in California, and the Internet controls its networked devices. With the Internet or the phone -- through a new deal with AT&T (NYSE: T) -- it's easy to direct a skyscraper's heating and ventilation, elevators, security, and lighting; a nuclear power plant; Italy's electricity; railroad car brakes; a South African gold mine; the Bellagio hotel's dancing fountains; a Buddhist monastery's sound system in Thailand; light rail; or your own home's lights, door lock, and refrigerator. Use your imagination! Danny Dunn would.

So, this is what Echelon hath wrought. Its motto? "Bringing the Internet to Life."

Tomorrow we'll run Echelon through the Rule Breaker criteria.

--Tom Jacobs, TMF Tom9 on the discussion boards.

P.S. The Motley Fool Research Industry Focus 2001 is now for sale! We give our take on 17 sectors -- including Rule Breaking areas such as optical networking, wireless, and biotechnology -- and point out the top dog of the group. Buy before Dec. 15 and cut 10% off the cover price.